Social Security, Medicare, and Fuzzy Math

The figures in the article are bull, because they ignore the time value of money. If you get $10 taxed from you at age 22, you cannot compare that to a $20 benefit received at age 65. That $10 would have grown to $54 at modest 4% interest. At a 4% interest, the medicare payments would be equivalent to $298K.
(I can recreate their $114,000 number by simply mulitplying 2.9% on $89,000 for 44 years, age 22-65.)

Social Security is a huge rip off. If that couple had social security in ultrasafe bonds earning a 4% interest rate, then they would have amassed $1.2 million, versus the $550K they will receive from the gov't. Coca-Cola, a very safe company, pays 4.875% on recent bonds.

AP: WASHINGTON – You paid your Medicare taxes all those years and think you deserve your money's worth: full benefits after you retire.


Nearly three out of five people say in a recent Associated Press-GfK poll that they paid into the system so their benefits shouldn't be cut.

But a newly updated financial analysis shows that what people paid into the system doesn't come close to covering the full value of the medical care they can expect to receive as retirees.

Consider an average-wage, two-earner couple together earning $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers.

But they can expect to receive medical services — from prescriptions to hospital care — worth $355,000, or about three times what they put in.

The estimates by economists Eugene Steuerle and Stephanie Rennane of the Urban Institute think tank illustrate the huge disconnect between widely-held perceptions and the numbers behind Medicare's shaky financing. Although Americans are worried about Medicare's long-term solvency, few realize the size of the gap.
"The fact that you put money into the system doesn't mean it's there waiting for you to collect," said Steuerle.
By comparison, Social Security taxes and expected benefits come closer to balancing out.

The same hypothetical couple retiring in 2011 will have paid $614,000 in Social Security taxes, and can expect to collect $555,000 in benefits. They will have paid about 10 percent more into the system than they're likely to get back.

Many workers may believe their Medicare payroll taxes are going for their own insurance after they retiree, but the money is actually used to pay the bills of seniors currently on the program.